City Office REIT(CIO) - 2023 Q2 - Quarterly Report

Property Portfolio - As of June 30, 2023, the company owned 24 properties comprising 58 office buildings with a total of approximately 5.7 million square feet of net rentable area (NRA) and was approximately 85.6% leased[108]. - As of June 30, 2023, the company’s properties are located in metropolitan areas including Dallas, Denver, Orlando, Phoenix, Portland, Raleigh, San Diego, Seattle, and Tampa[118]. Economic Environment - The economic environment remains volatile, with rising inflation leading to increased interest rates, which has made private market debt financing significantly more challenging to arrange[110]. - The company anticipates that many businesses may tighten in-person work policies, which could help offset recessionary headwinds to space demand[111]. - Future economic downturns or regional downturns could adversely affect the company's ability to renew or re-let space, impacting rental rates[116]. - The company anticipates continued positive population and economic growth in its Sun Belt markets, although external factors like inflation and interest rates may impact future performance[121]. Leasing and Occupancy - Leasing activity is expected to be impacted by the COVID-19 pandemic, with slower new leasing and uncertainty over existing tenants' long-term space requirements potentially reducing anticipated rental revenues[113]. - The ability to maintain occupancy rates and lease available space will significantly influence the amount of net rental revenue generated by the company's properties[116]. - The company has experienced challenges in retaining and attracting new tenants due to potential business layoffs and industry slowdowns[110]. - Occupancy rates in key properties such as Park Tower and City Center improved, contributing to increased revenues of $0.6 million and $0.3 million, respectively[123]. Financial Performance - Rental and other revenues decreased by $0.9 million, or 2%, to $44.6 million for Q2 2023 compared to $45.5 million for Q2 2022, primarily due to lower occupancy and property dispositions[123]. - Total operating expenses increased by $0.5 million, or 1%, to $36.7 million for Q2 2023 from $36.2 million for Q2 2022, with significant contributions from recent acquisitions[124]. - General and administrative expenses rose by $0.1 million, or 1%, to $3.7 million for Q2 2023, mainly due to higher stock-based compensation[127]. - For the six months ended June 30, 2023, rental and other revenues increased by $0.3 million, or 0.2%, to $90.6 million compared to $90.3 million for the same period in 2022[129]. - Total operating expenses for the six months ended June 30, 2023, increased by $1.6 million, or 2%, to $73.5 million from $71.9 million in the prior year[130]. - The December 2021 acquisition of Bloc 83, Block 23, and The Terraces contributed an increase of $2.5 million in revenue for the six months ended June 30, 2023[129]. - The company recognized a loss on deconsolidation of $0.1 million related to the 190 Office Center property in Q2 2023[128]. - Depreciation and amortization decreased by $0.4 million, or 1%, to $31.1 million for the six months ended June 30, 2023, compared to $31.5 million for the same period in 2022[131]. - Property operating expenses increased by $1.7 million, or 5%, to $35.0 million for the six months ended June 30, 2023, from $33.3 million for the same period in 2022[138]. - Interest expense increased by $4.3 million, or 34%, to $16.6 million for the six months ended June 30, 2023, from $12.3 million for the same period in 2022[141]. Cash Flow and Financing - Net cash provided by operating activities decreased by $47.4 million to $27.6 million for the six months ended June 30, 2023, compared to $75.0 million for the same period in 2022[144]. - Net cash used in investing activities increased by $2.6 million to $23.8 million for the six months ended June 30, 2023, compared to $21.2 million for the same period in 2022[145]. - Net cash provided by financing activities increased by $31.2 million to $4.6 million for the six months ended June 30, 2023, compared to $26.6 million used in financing activities for the same period in 2022[146]. - As of June 30, 2023, the company had approximately $38.4 million of cash and cash equivalents and $14.3 million of restricted cash[147]. - The company had approximately $205.7 million outstanding under its Unsecured Credit Facility as of June 30, 2023[148]. Strategic Operations - The company will continue to evaluate business operations and strategies to optimally position itself given current economic and industry conditions[114]. - The company has implemented practical expedients related to Reference Rate Reform in its financial statements[122].